Wall Street Minds, Capital Redistribution And Monetary Policy
There is this story about small town in Honduras nestled on the coast of the Caribbean. With about one visitor a month, the economy wasn't boding well for the town and all its citizens, it seems, were living on credit and in debt.
Out of the blue, a wealthy tourist arrives into town and makes his way to the only hotel which also has a bar and restaurant and wants to be shown a room. He put $100 bill on the counter and asks if he could have a meal before he inspects the rooms. Seeing the $100 bill, the owner runs off and uses it to pay off his bill at butcher supply.
The Butcher takes the 100 dollar bill, and runs to pay his debt to the rancher. The rancher takes the hundred dollar bill and runs to pay his debt to the feed supplier. The feed supplier runs off to pay his debt to the gas station for his fuel costs.
Compelled to make good on past debts, the fuel dealer takes the $100 bill and pays his debt to his personal prostitute. Because of hard times she gave out her services on credit and she now pays her debt to the hotel for past rooms rented for her clients.
The hotel proprietor then lays the hundred dollar bill back on the counter so that the rich tourist will not suspect anything. After finishing a great meal and feeling refreshed he pays for the meal with pocket change and foregoes inspecting the rooms. Feeling energized and seeing the storm clouds lift, the rich tourist takes his hundred dollar bill and leaves town.
The story behind the tale is that, since everyone in the town was in debt, just the mere circulation of money with no real wealth created in any ones pockets, allowed for bills to get paid and improved everyone's balance sheet. No one put money in the bank but progress was felt.
Now the story gets more interesting. The stranger tells others about what a great town he discovered and about the tasty dinner he experienced. The local newspaper picked up the story. Later in the month, when 7 new tourists arrive and take rooms, the hotel proprietor senses a change. He begins planning raising his room rates, perhaps even adding some rooms sensing a future upsurge. The rancher wants to raise his cattle prices because of the increased demand. The feed and fuel supplier is thinking along the same lines. And, let's not forget the prostitute who'll have to charge more because room rates increased.
As long as everyone is proactive paying off their debts, money circulates. Bailouts haven't done much of anything other than pay off some debts, mostly that of the big folks in a way that liabilities have been transfer from one balance sheet to another. However, when the positive news emerges and "green shoots" of optimism takes hold, gushing new purchases by the little people will surge and lift all boats ... and on off we go to the races we go. In order to remain ahead of the news, get your Wall Street Journal subscription today. - 23210
Out of the blue, a wealthy tourist arrives into town and makes his way to the only hotel which also has a bar and restaurant and wants to be shown a room. He put $100 bill on the counter and asks if he could have a meal before he inspects the rooms. Seeing the $100 bill, the owner runs off and uses it to pay off his bill at butcher supply.
The Butcher takes the 100 dollar bill, and runs to pay his debt to the rancher. The rancher takes the hundred dollar bill and runs to pay his debt to the feed supplier. The feed supplier runs off to pay his debt to the gas station for his fuel costs.
Compelled to make good on past debts, the fuel dealer takes the $100 bill and pays his debt to his personal prostitute. Because of hard times she gave out her services on credit and she now pays her debt to the hotel for past rooms rented for her clients.
The hotel proprietor then lays the hundred dollar bill back on the counter so that the rich tourist will not suspect anything. After finishing a great meal and feeling refreshed he pays for the meal with pocket change and foregoes inspecting the rooms. Feeling energized and seeing the storm clouds lift, the rich tourist takes his hundred dollar bill and leaves town.
The story behind the tale is that, since everyone in the town was in debt, just the mere circulation of money with no real wealth created in any ones pockets, allowed for bills to get paid and improved everyone's balance sheet. No one put money in the bank but progress was felt.
Now the story gets more interesting. The stranger tells others about what a great town he discovered and about the tasty dinner he experienced. The local newspaper picked up the story. Later in the month, when 7 new tourists arrive and take rooms, the hotel proprietor senses a change. He begins planning raising his room rates, perhaps even adding some rooms sensing a future upsurge. The rancher wants to raise his cattle prices because of the increased demand. The feed and fuel supplier is thinking along the same lines. And, let's not forget the prostitute who'll have to charge more because room rates increased.
As long as everyone is proactive paying off their debts, money circulates. Bailouts haven't done much of anything other than pay off some debts, mostly that of the big folks in a way that liabilities have been transfer from one balance sheet to another. However, when the positive news emerges and "green shoots" of optimism takes hold, gushing new purchases by the little people will surge and lift all boats ... and on off we go to the races we go. In order to remain ahead of the news, get your Wall Street Journal subscription today. - 23210
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posted by X - Men @ 2:49 AM
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